What Was the Medicare Donut Hole?
The Medicare donut hole (officially called the coverage gap) was a temporary limit on what Medicare Part D plans would cover for prescription drugs. Once you and your plan spent a certain amount on covered drugs, you entered the coverage gap and paid a higher percentage of drug costs until you reached catastrophic coverage.
The donut hole was created when Medicare Part D launched in 2006 as a cost-control measure. It was gradually reduced over the years through the Affordable Care Act and was fully eliminated by the Inflation Reduction Act.
How the Donut Hole Was Phased Out
The Affordable Care Act (2010) began phasing out the donut hole by requiring drug manufacturers to provide discounts on brand-name drugs in the gap. The Inflation Reduction Act (2022) finished the job by capping out-of-pocket costs at $2,000 starting in 2025.
| Year | Brand Drug Cost in Gap | Generic Drug Cost in Gap |
|---|---|---|
| 2010 | 100% | 100% |
| 2020 | 25% | 25% |
| 2024 | 25% | 25% |
| 2025+ | Eliminated ($2,000 OOP cap) | Eliminated ($2,000 OOP cap) |
The New 2025-2026 Part D Structure
Starting in 2025, Medicare Part D has a simpler two-phase structure:
- Phase 1: Deductible phase - You pay 100% of drug costs until you meet your deductible (up to $615 in 2026)
- Phase 2: Coverage phase - You pay your plan's copays/coinsurance until you reach $2,000 in out-of-pocket costs
- Phase 3: Catastrophic phase - After $2,000 OOP, you pay $0 for covered drugs for the rest of the year
The $2,000 cap is a major improvement for people with high drug costs, particularly those on specialty medications. In prior years, beneficiaries could spend $5,000+ before reaching catastrophic coverage.
Medicare Prescription Payment Plan (M3P)
The Inflation Reduction Act also created the Medicare Prescription Payment Plan (M3P), which lets you spread your out-of-pocket drug costs evenly across the year in monthly installments. This prevents large upfront costs early in the year when you are in the deductible phase.
M3P is optional and must be elected each year. It does not reduce your total costs - it only smooths out when you pay them. Contact your Part D plan to enroll.